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Greece outlines new austerity as debt load rises

By ELENA BECATOROS – The Associated Press

Oct. 31, 2012

ATHENS, Greece – Greece's government on Wednesday outlined the new austerity measures it intends to take over the next two years, a series of painful spending cuts and tax hikes that its international bailout creditors are demanding in exchange for rescue loans.

The country's finance minister also submitted a revised draft budget for 2013, with figures predicting the debt load will increase sharply as the recession deepens into a sixth straight year.

Unions responded by announcing a 48-hour general strike for next week, when the new measures are expected to be voted on in Parliament.

The €13.5 billion ($17.5 billion) worth of cutbacks for 2013-14 include a two-year increase in the retirement age, from the current average of 65, salary and pension cuts and another round of tax increases, including raising taxes for the interest on bank deposits from 10 to 15 percent.

The vast majority of the measures, about €9.2 billion, are to be taken next year. They include a €4.6 billion cut in pensions and a €1.17 billion cut from salaries. Healthcare spending will be trimmed by a further €455 million.

Parliamentary approval of the measures is essential if Greece is to receive the next installment of its bailout loans — this time a hefty €31 billion. Without the funds, the country has said it will run out of money on Nov. 16.

Greece's three governing parties have spent months negotiating these measures with international debt inspectors, who have yet to formally approve them. The talks have severely strained ties in the already uneasy coalition of conservatives, socialists and a small left-wing party.

With just days to go before an expected Parliamentary vote on the measures, the Democratic Left has insisted it cannot back them. Prime Minister Antonis Samaras has warned that the country will face financial chaos if they are not passed.

Finance ministers from the other 16 countries that use the euro said after a telephone conference Wednesday that they hope to decide on Nov. 12 whether to give Greece its next bailout installment, provided the country agrees to the reforms.

German Finance Minister Wolfgang Schaeuble, however, warned it was unlikely for that deadline to be met since the German Parliament would have to vote on the issue.

Everything will ultimately hinge on a report by Greece's debt inspectors from the European Central Bank, European Commission and International Monetary Fund, collectively known as the troika, on the state of Greece's compliance with its bailout terms.

A delay in disbursing the funds would threaten to leave Greece without rescue financing after Nov 16, when its money runs out. The country could finance itself temporarily by issuing short-term debt, as it has done in the past, but it would not be able to do so for more than a few weeks since it pays very high rates to raise money in bond markets.

The strain in the governing coalition was evident in a Parliamentary vote Wednesday on a bill to allow the government to privatize public utilities. The bill passed by majority, but lawmakers from the two junior coalition partners voted against certain articles.

Finance Minister Yannis Stournaras submitted the revised budget to Parliament Wednesday. The deputy finance minister, however, canceled a scheduled presentation of the budget due to a 24-hour journalists' strike to protest austerity measures.

The revised figures highlight the country's monumental struggle in turning around its public finances.

Government debt is projected to rise to 189.1 percent of gross domestic product in 2013, above the 182.5 percent predicted in the preliminary draft submitted at the start of October, and up from the 175.6 percent forecast for this year.

The deficit is now projected at 5.2 percent of GDP in 2013, up from 4.2 percent predicted in the preliminary draft of the budget — but still an improvement from the 6.6 percent predicted for this year.

Predictions of a primary deficit surplus — which strips out the cost of paying interest on outstanding debt — of a modest 1.1 percent have also been revised downwards, with the projection now standing at 0.4 percent for next year.

The recession, meanwhile, will be deeper than the 3.8 percent contraction the preliminary draft had predicted, with the new figures estimating the economy will shrink by 4.5 percent.

Unemployment is projected at 22.8 percent next year, marginally higher than the 22.4 percent predicted for 2012. Greece registered record unemployment in July this year, with the jobless rate reaching 25.1 percent.

National debt will stand at €346.2 billion, slightly higher than this year's €340.6 billion, the revised budget showed.

The economy is forecast to gradually clawing its way out of the recession and eventually post growth of 3.5 percent in 2016.